Republicans in the U.S. Congress are pushing for tax increases on U.S. universities, according to a new bill advocated by President Donald Trump, narrowly passed in the House last Thursday.
Supporters of the bill believe that a provision related to higher education institutions is aimed at “wake up” universities.
The university has been hit by Trump’s executive orders and decisions aimed at changing education and immigration in the country, as well as weakening of the pro-Plastine protests held last year on U.S. university campuses.
The new tax plan aims to increase taxes on the benefits American universities receive from endowments.
Donations refer to funds or assets donated to the university to keep them financially maintained in the future.
Donations usually include charitable contributions from alumni, other donors and companies.
The bill before the U.S. Congress sets tax rates for colleges based on valid donors of colleges - by dividing their total donors by the number of full-time students at the institution.
If the bill becomes law, the investment proceeds donated to donations will be taxed.
Most universities have not taxed their donations for centuries.
The Tax Act of 1909 exempted educational institutions as nonprofits, which operated for the public interest “for religious, charitable or educational purposes only.” As a result, educational institutions did not pay tax on their investment proceeds.
Things changed during Trump’s first presidency. In 2017, Congress passed the Tax Cuts and Jobs Act, which imposes a 1.4% tax on universities, and its donation is at least $500,000 and at least 500 students paying for tuition. Therefore, the tax applies only to some of the richest institutions in the country.
Among the 56 universities that meet the tax column, the donation tax generated about $380 million in 2023.
On May 22, the Republican-controlled House passed a 215-214 vote, which Trump and the authors of the legislation called a large beauty bill. In this bill, it is a proposal to increase taxes on elite universities.
The proposal is stratified and aims to impose the following taxes:
These percentages apply to colleges with at least 500 tuition-paid students in the previous year, with 50% of full-time tuition-paid students in the United States. Universities identified as “qualified religious institutions” are exempt from this tax.
The proposal was drafted by Republican lawmakers on the Ways and Means Committee of the House’s Oldest Tax Writing Agency.
"For a long time, universities have received beneficial treatment while tax laws," said Jason Smith, Republican Missouri and chairman of the House Roads and Means Committee.
A fact sheet released by Smith said that taxes “hold Wake, the operation of elite universities is more like the responsibility of major companies and other tax-free entities.”
The bill is now heading to the Senate, with Republicans owning 53 seats and Democrats owning 47 seats. It is not clear when the vote will be held, but Trump urged Republican senators to pass immediately.
On May 22, Trump wrote on his Truth Social Platform: “Thanks to every Republican who voted on this historic bill!
A New York Times survey found that at least 58 schools could be affected.
Large universities may be among the highest tax tablets.
In the fiscal year 2024, Harvard University's total donation value was approximately $53.2 billion, the largest of any university. Harvard has 24,596 students, which means each student’s donation is $2.16 million. This means that if the bill becomes law, a 21% tax must be paid.
Yale University's endowment is worth $41 billion, and the university has 15,490 students and each student's endowment is about $2.7 million. Although the institute currently pays a 1.4% tax, it also has to pay a 21% tax if the bill becomes law.
Similarly, Stanford University’s donation amounted to $36.5 billion, with 17,529 students, each of which was about $2.1 million. Although the institute currently pays a 1.4% tax, if the bill becomes law, it will have to pay a 21% tax.
By comparison, the total donation from the University of Pennsylvania was $22.3 billion as of June 2024, and the institute has 24,219 full-time students and each student has $920,764. Although the institute currently pays a 1.4% tax, if the bill becomes law, it will have to pay a 7% tax.
But because the bill determines which universities should pay taxes based on each student’s donation, it will not only be affected by large schools: even smaller private institutions that previously paid a 1.4% tax may now have to pay more.
Pomona College in Claremont, California has a total donation of $3 billion in 2024, and the institute uses 5% per year.
The university said 60% or $36 million in financial aid in Pomona has been covered by donations, which also covers half of the institute's operating budget. It has 1,747 students, meaning Pomona’s per capita donation is $1.7 million. So far, it has paid a 1.4% donation tax; if the bill passes, it will be taxed 14%.
If the bill passes in the Senate, Trump will almost certainly sign the bill.
However, the version of the legislature starting from Congress may be different from the version passed by the House.
"Even if the Senate passes taxes, they have the potential to change their taxes and standards in the process," said Emily Saulnier, editor-in-chief of Boston College Review Review, a Boston College Review Review publication.
Senate centrists and conservative Republicans disagree on the bill. House Speaker Mike Johnson urged Republican senators to modify it as little as possible. If the Senator passes the revised version, the House will need to vote on the new text in order to pass it on to Trump, who signs it into law.
Sen. Ron Johnson, a Republican of Wisconsin, opposed the bill in its current form, believing that it would increase the national deficit, the difference between the amount spent by the federal government and the amount earned through income. Johnson said the House bill would add "$4 trillion" to the deficit. In 2024, the deficit is US$1.83 trillion.
Republican Kentucky Sen. Rand Paul raised similar concerns in a May 25 interview with Fox News, saying he supported parts of the bill, but that it would "explode debt."
But if the bill does pass and is signed by Trump, it will “applicable to all colleges that meet the legislative conditions.”
"This legislation poses a greater threat to Yale," Yale President Maurie McInnis said in a statement released on May 22.
“Granting taxes increases the financial burden on students by making affordable prices at universities lower. Tax schools reduce income that can be used for financial aid,” she wrote. “The donation tax will undermine the country’s global technical leadership.”
At a 2024 faculty meeting, Harvard President Alan M Garber called the pay raise granted to donation taxes "the threat to get me up at night."
The Trump administration has repeatedly attacked higher education institutions, accusing them of failing to curb anti-Semitism or “illegal and immoral discrimination” in the form of diversity, equality and inclusion (DEI) programs.
Last year, several U.S. universities, including Columbia, Yale, New York University (New York University) and Harvard, broke out in several U.S. universities.
On January 29, Trump signed an executive order titled “Other Measures to Fight Anti-Semitism”, ordering executive heads to submit reports on all criminal and civil authorities, as well as actions that can fight anti-Semitism.
A day after he signed this order, Trump was quoted in a White House fact sheet, saying: “To all the resident aliens who joined in the pro-jihadist protests, we put you on notice: come 2025, we will find you, and we will deport you. I will also quickly cancel the student visas of all Hamas sympathizers on college campuses, which have been infected with radicalism like never before.”
Trump has since frozen federal funds to several universities, including Columbia and Harvard.
Because the funding is risky, universities rely more on their endowments to maintain the research they conduct.
However, donations are subject to restrictions and donors determine the cost of most donations. In Harvard’s case, donors decide on 70% of the donation distribution per year.
On May 22, the Trump administration revoked Harvard’s certification to register any new foreign students. This move has been temporarily stopped by a federal judge.
On Tuesday, the government ordered the U.S. embassy to stop arranging appointments for new visa interviews for foreign students and exchange visitors, according to the news agency’s internal cable.